Taxpayer's Duty To Come Clean To HMRC

It Is The Taxpayer Who Knows And Is In A Position To Provide The Answers.

Taxpayer’s Duty To HMRC

Taxpayer’s Duty to Come Clean to HMRC arises by virtue of the regime governing how HMRC becomes aware of what each taxpayer owes it or alternatively what it owes to a taxpayer. 

The regime is self-assessment. The taxpayer assesses the amount of tax that is due to be paid to HMRC. HMRC generally only does its own assessment in instances where there are compliance failures, such as a failure to submit returns or where a Tax Enquiry appears to have shown errors and or omissions on the taxpayer’s return.

As a consequence of reliance upon the taxpayer, there is a duty of transparency on the part of the taxpayer to provide accurate information on its tax affairs to HMRC.

However, what happens if mistakes or errors arise in tax returns or even if returns are not submitted? The duty is on the taxpayer to come ‘clean’ to HMRC. Can you write off HMRC tax debts? No. So in the case of Nicholson v Morris (H M Inspector of Taxes) 51 TC 95 the following was broadcast:

It is the taxpayer who knows and the taxpayer who is in a position (or, if not in a position, who certainly should be in a position) to provide the right answer, and chapter and verse for the right answer, and it is idle for any taxpayer to say to the Revenue, “Hidden somewhere in your vaults are the right answers: go thou and dig them out of the vaults.” That is not a duty on the Revenue…It is the duty of every individual taxpayer to make his own return and, if challenged, to support the return he has made, or, if that return cannot be supported, to come completely clean…

If the taxpayer does not come clean to HMRC and there is a discovery of errors and or omissions, then a penalty regime exists. Penalties are scaled depending upon how failings have arisen. Carelessness will result in potentially less of a penalty than deliberate dishonesty.

There is good reason if in doubt to take professional advice in respect of your dealings with HMRC. The offence of Cheating the Public Revenue at common law still exists. It can arise from any form of fraudulent conduct, including fraud arising from omission.

In the case of Rahman v Commissioners of Customs and Excise [2002] EWCA Civ 1881 Chadwick LJ at [45] said:

The underlying purpose of the legislative provisions is to ensure that the taxable person accounts for the correct amount of tax.